G.R. No. L-27728 and G.R. No. L-28075. February 29, 1972.
PHILIPPINE UNITED SALES COMPANY and ANTONIO TIOCO, petitioners and appellants, vs. HON. SIMEON M. GOPENGCO, as Presiding Judge, Branch XXV, Court of First Instance of Manila, R & B SURETY & INSURANCE CO., INC., RURAL POWER CORPORATION, EUSEBIO E. FERRER, and LOURDES SISON FERRER, respondents and appellees.

FACTS

R & B Surety & Insurance Co., Inc. filed a complaint (Civil Case No. 65905) against Philippine United Sales Company and its general manager, Antonio Tioco, for the recovery of a sum of money. The suit stemmed from a letter of credit issued by Republic Bank for P50,000 in favor of United Sales, purportedly for electrical supplies to be sold to Rural Power Corporation. R & B Surety had executed a surety bond to secure the transaction. United Sales allegedly negotiated and collected the full amount of the letter of credit without actually delivering any goods. As Rural Power failed to pay, Republic Bank demanded and received payment from R & B Surety under the bond. R & B Surety, as subrogee of the bank and by virtue of a deed of assignment, sued United Sales and Tioco for fraud and to recover the amount paid.
United Sales and Tioco filed a third-party complaint against Rural Power and its officers, the spouses Eusebio and Lourdes Ferrer, asserting that if they were held liable, they should be able to recover from these third-party defendants who were the ultimate beneficiaries. The trial court, however, granted the third-party defendants’ motion to dismiss the third-party complaint. It also denied United Sales and Tioco’s subsequent motion for reconsideration, which included an alternative prayer for the dismissal of R & B Surety’s main complaint against them.

ISSUE

The primary issue is whether the trial court erred in dismissing the third-party complaint and in not dismissing the main complaint, thereby questioning the propriety of the third-party action and the legal sufficiency of R & B Surety’s causes of action.

RULING

The Supreme Court ruled partially in favor of the petitioners/appellants. The Court upheld the trial court’s refusal to dismiss the main complaint in R & B Surety’s action (denying the writ in G.R. No. L-27728). The amended complaint sufficiently alleged two distinct causes of action. The first was for damages based on fraud, where R & B Surety, as an assignee of Republic Bank, sought recovery directly from United Sales and Tioco for the fraudulently obtained proceeds of the letter of credit. This cause of action was independent of the surety bond. The second was an alternative cause of action based on subrogation under the surety bond and an indemnity agreement. The allegations, if proven, established a valid claim for relief.
However, the Court reversed the orders dismissing the third-party complaint (in G.R. No. L-28075). The legal logic is that a third-party complaint is proper under the Rules of Court when a defendant seeks to pass on liability to another who may be liable to them for all or part of the plaintiff’s claim. The third-party plaintiffs’ claim—that Rural Power and the Ferrers, as the accountee and applicants for the letter of credit, were the ultimate beneficiaries and thus should bear the ultimate liability—was not plainly baseless. Dismissing this claim at a preliminary stage, before trial on the merits, was premature. To do so would risk unduly enriching the third-party defendants at the expense of the third-party plaintiffs if the latter were later found liable in the main action. The case was remanded